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SHARMINI PERIES: It’s the Real News Network. I’m Sharmini Peries coming to you from Baltimore. The rise of stock prices in the US stock market could be an indication of economic growth and prosperity, but it could also be an indication of the concentration of wealth of the rich and powerful. Which is it? To answer that question, we need to look at other economic indicators. In the press conference that President Trump had just a few days ago announcing his new chief of staff, General John Kelly, Trump took the opportunity to give himself credit for the rising stock prices. Let’s listen.

DONALD TRUMP: We’ve done very well, lots of records created, John. You look at stock market, the highest it’s ever been. Unemployment, lowest in 17 years. Companies are doing tremendously well. Business spirit is the highest it’s ever been, according to polls. You look at the polls, the highest it’s ever been in the history of these polls. We’re doing very well. We have a tremendous base. We have a tremendous group of support. The country is optimistic.

SHARMINI PERIES: Well, on to talk about this with me today is Michael Hudson. Michael is a distinguished research professor of economics at the University of Missouri, Kansas City. He is the author of The Bubble and Beyond and The Finance Capitalism and Its Discontents. His most recent books are J is for Junk Economics and Killing the Host: How Financial Parasites and Debt Bondage Destroyed the Global Economy. Good to have you back, Michael.

MICHAEL HUDSON: Good to be back, Sharmini.

SHARMINI PERIES: So Michael, if the stock prices are not increasing because of what Trump calls “high business spirit,” explain the rise in the stock prices.

MICHAEL HUDSON: Well, the answer’s quite simple. The question is, who is buying these stocks? It’s not individuals. It’s not even pension funds. It’s not the private sector. Almost all the stock purchases are bought back by corporations in share buybacks. In other words, companies are buying back their own stocks in order to push up the price because that’s how executives are paid. They’re not paid by increasing output or even increasing profits. They’re paid by how much they can push up the stock price, and there are two ways of doing this easily. One is to use earnings simply for share buybacks, buy your own stock and push it up, or you simply pay out the earnings in dividends.

What you don’t do if you want to increase the stock price is you don’t invest more in research, you don’t invest more in capital, you don’t hire more labor, and you don’t expand the markets. In other words, you give up. You say, The economy’s reached an end. It’s not going to grow from here. We’re taking the money and running. We’re just going to use the earnings that we have to help the stockholders, so the stock market is actually the reverse of how the economy is doing.

SHARMINI PERIES: All right, Michael. This might be a little elementary for the big-time economist, but explain how the buying back of stock increases the money that they make.

MICHAEL HUDSON: The price of almost anything is a result of how many people are buying and how many people are selling. What’s happened is basically the individuals and the private sector is selling the stocks. Normally this would push down stocks, and the reason it’s selling is most investors think, Wait a minute. The reason stock prices have gone up is because the Federal Reserve has flooded the economy with low-interest money and people are borrowing at 1% in order to buy stocks that are yielding 5 or 6% and they’re pocketing the difference.

But now, everybody thinks, Wait a minute. This is going to come to an end. The Federal Reserve says it’s going to raise interest rates. Same thing in the European Central Bank and the Bank of England. They expect higher interest rates are going to push down stock prices because it’s not going to pay people to borrow to buy stocks anymore. Most investors today are looking for the stock markets to make a big decline. They don’t want to hold them.

Who is going to want to buy stocks that are going to go down in price? The answer is the corporations are going to buy it because the stock managers aren’t penalized if they make a bad investment. If the stock price goes way down, the company loses because they had a huge loss on its shares that it bought back, but the managers of the company clean up. They’re paid the bonus because they’re paid according to how much money they can push in to buying up their own stock to support the price. If you say you’re going to pay a high price for anything, that’s going to raise the price and they’re pouring the corporate earnings into their own stocks, not into investment.

SHARMINI PERIES: Why are companies paying out high dividends rather than reinvesting their profits in order to generate, say, long-term income?

ORDER IT NOW

MICHAEL HUDSON: For two reasons: They see the economy isn’t really growing for the 99% of the people. Here in New York, street after street, there are for-rent signs. The small businesses are going out of business. Bookstores are going out of business. Restaurants are going out of business. They realize that the whole boom that’s occurred from World War II to 2008 is over. They’re not going to invest, but most of all, they’re buying back the stocks simply to benefit the people who run the companies, the chief financial officers and the CEOs. The whole way in which the remuneration of CEOs is paid, gigantic remuneration according to the stock price, is actually hurting industrial capitalism.

These companies have been turned into financial entities. You should no longer think of them really as industrial entities. Corporations make money financially, not by producing goods and services.

SHARMINI PERIES: Right, and Michael, could you explain why suddenly we see big mergers going on? For a while there there seemed to be a hiatus in terms of these kinds of big mergers, but recently we’ve seen Amazon merging with Whole Foods, some of the major media companies, if not already, are considering mergers. Why is this going on right now?

MICHAEL HUDSON: Two reasons: One is there is still a lot of low-interest credit available for them. Companies can simply borrow from banks that borrow from bondholders at low-interest rates and buy another company and create a monopoly. In the past they couldn’t do this because they were afraid of anti-monopoly legislation. Today, you have four or five companies controlling almost every major industry. Think of the airlines, think of cable TV, think of the phone companies, think of information technology. They’re all being monopolized and there are no more anti-monopoly rules, and so what they’re trying to get isn’t really profits.

The national income statistics call them profits, but they’re really monopoly rent. They’re rent way in excess of normal profits because they’re whatever the market can bear, and if you have cable TV by what used to be Time Warner, and now you’ve seen all your cable prices going up, or your IT prices going up, or your airline prices going up, that’s because monopolies are now the way to squeeze out money. You don’t have to invest more. You don’t have to make capital investment. You don’t have to employ labor, even. All you have to do is use your monopoly privileges that you’ve bought with borrowed money.

SHARMINI PERIES: Finally, in terms of Trump’s economic plans, how do these trends, these mergers and stock prices going up, affect the very people that voted for Trump, the white working class in particular?

MICHAEL HUDSON: Obviously it’s not helping them at all. They listened to what Trump said, not realizing that when you’re voting for a presidential candidate, you want to look at who his financial backers are. Who are the donors? Trump’s donors were basically the monopolists: the Koch brothers, and the oil and gas industry, and other far-right-wing corporate organizations that are all in favor of monopoly. The last thing they want to do is help the working class. Trump’s genius was in convincing the white working class that he was for them when actually his policies are against them.

Just like the Democratic candidate Hillary was able to convince her constituency, the blacks, the racial minorities, that she was for them instead of coming down hard against them as the Clintons’ have done ever since the 1990s with their tax on welfare, their support of Wall Street, and their support of big capital. Both parties have the same donor class and they’re trying to get elected by groups in America that they have no intention at all of carrying forth their promises to help their interests.

SHARMINI PERIES: Further, one must notice that when Trump and Pence were running for office, back in September 2016 they launched their big economic plan which was going to create 12 million new jobs. If you click on that plan now, it goes to an error message and an empty page.

MICHAEL HUDSON: The problem is that any economic plan has to be more than two days long. That’s Trump’s attention span. He is not a long-term planner. He’s just going to opportunistically ride whatever wave there is at a given moment, and nobody I know, whether my old Republican friends or other analysts, has a clue about what he’s going to do next because I don’t think he has a clue what he’s going to do next. He’s just going to say, “What’s in it for me?” Whoever gives him the most, that’s going to be. You can look at his Russia policy, has turned into anti-Russia. You could look at his policy saying NATO’s obsolete that’s now pro-NATO. His policy in the near-East … he’s gone against everything that he’s said. That’s what a smart demagogue does.

SHARMINI PERIES: All right, Michael. I thank you so much for joining us today and look forward to your report soon.

MICHAEL HUDSON: Good to be here.

SHARMINI PERIES: And thank you for joining us here on the Real News Network.

Michael Hudson is a Distinguished Research Professor of Economics at the University of Missouri, Kansas City. He is the author of many books, including The Bubble and Beyond, and Finance Capitalism and its Discontents,Killing the Host- How Financial Parasites and Debt Destroy the Global Economy, and most recently J is for Junk Economics: A Survivor’s Guide to Economic Vocabulary in an Age of Deception.

I would like to see some numbers that would support Mr. Hudson’s explanations. Like for example stock ownership by corporations over some period of time. W/o it Mr. Hudson’s explanation is just one of many which are forwarded by dubious analysts every day.

At 2 points, you say “two reasons” then only give one reason for each question…..

The first time you say that corporations dont see the economy growing for the 99%, that the 75 year bubble burst, then go on to reinforce that point, forgetting a second point.

The second mentioning of “two reasons”, about mergers, you say low interest credit is still available for them is reason 1, then go into how they have formed monopolies by having so much extra borrowed capital.

Both parties have the same donor class and they’re trying to get elected by groups in America that they have no intention at all of carrying forth their promises to help their interests.

In fact, there are no fundamental differences between the big parties, and I’m happy to see that more people are losing their fantasies about them.

I said, “No, there is a great difference. Taft is amiable imbecility. Wilson is willful and malicious imbecility and I prefer Taft.”

Roosevelt then said : “Pettigrew, you know the two old parties are just alike. They are both controlled by the same influences, and I am going to organize a new party ” a new political party ” in this country based upon progressive principles.

- R. F. Pettigrew, “Imperial Washington,” The story of American Public life from 1870 to 1920 (1922), p 234

As for Trump, there never was a chance in Hades that he would ever give a (bleep) about the “little” people. It was all showtime campaign rhetoric and nothing else. The present brouhaha over Russia is theater, a juvenile distraction from who-knows-what at best.

Trump’s donors were basically the monopolists: the Koch brothers, and the oil and gas industry, and other far-right-wing corporate organizations that are all in favor of monopoly.

Trump was created, maintained and elected by MSM. Trump, Trump, Trump 24/7 for months to sell papers and air time. The out- of -pocket by those honcho donors is chump-change in today’s world. Why are we so surprised by Trump being Trump now that he is President? If any change in demeanor was observed we would know immediately he was faking it like most of his predecessors have always done. You get what you elect and pay for in our system. He is viewed the same way we view Kim Jong Un as somehow different; therefore fair game for the long knives.

“Are not the dominant parties managed by the ruling classes, that is, the propertied classes, solely for the profit and privilege of the few?

They use us millions to help them into power. They tell us like so many children that our safety lies in voting for them. They toss us crumbs of concession to make us believe that they are working in our interest. “

It’s not that I disagree with Michael Hudson’s macr0-economic anslysis…I think he is…and had always been….dead on accurate. But at the end of the day, it’s all just macro-economic policy tweaking to accommodate an exponentially growing post-1965 nonwhite scab labor workforce.

It is physically impossible to do this….and for demographic reasons, it should have never been attempted in the first place. All the nice and pleasant amenities of America…America’s Natural Beauty ….are going to paved over with hot blistering asphalt….just so that Pepe…Han….Singh…Prandeep….Sandeep…. can have a home and a rapidly expanding post-1965 nonwhite GENELINE on America Soil=Trumpism-Bannonism-Hudsonism….

cry me a river
MICHAEL HUDSON: For two reasons: They see the economy isn’t really growing for the 99% of the people. Here in New York, street after street, there are for-rent signs. The small businesses are going out of business. Bookstores are going out of business. Restaurants are going out of business. They realize that the whole boom that’s occurred from World War II to 2008 is over. They’re not going to invest, but most of all, they’re buying back the stocks simply to benefit the people who run the companies, the chief financial officers and the CEOs. The whole way in which the remuneration of CEOs is paid, gigantic remuneration according to the stock price, is actually hurting industrial capitalism.

business come and go. this has no bearing on the overall health of the economy. Although I agree that this economic climate is exceptionally hard for low-IQ small ‘brick and mortar’ business, as opposed to high-IQ tech & app companies, which are thriving.

What about the restrictions imposed after WWI?? Why can’t we restrict like Switzerland and the like?
White Christians; “Be fruitful and multiply. Fill the earth and govern it. Reign over the fish in the sea, the birds in the sky, and all the animals that scurry along the ground.” Multiply before we’re goners!!

This article, while seemingly complex and organized, links supportable with evidence conclusions, with unsupported with adequate evidence conclusions. I suspect this error is not intentional deceptive, but arrived at by the academic environment’s shaping of the interviewed’ s bias against Trump. That said, you will notice I am also guilty of conclusions that aren’t adequately supported by evidence. Of course, I don’t have 1800 words to engage the reader with… ha!

There is a difference, which is that Trump was the military deep state’s candidate, whereas Obama and Clinton were the CIA deep state’s candidates.

The military backed Trump because they are angry at being sent to fight wars they are not allowed to win despite having at their disposal overwhelmingly superior means of violence. Hence Trump’s promise to “bomb the shit out of ” ISIS, his enthusiasm for using nukes, and his advocacy for veterans.

Immigration restriction was the pay-off that Trump promised the white working class in return for their votes. If Trump follows though on that, the difference between parties could mean the difference between survival and extinction for the European majority in America.

Bond yields combine expectations about currencies, interest rates, economic growth, inflation, government effectiveness and efficiency, economic cycles all over the period of the bond, to name but a few factors. Simplifying, a low yield shows investor confidence in an economy.

Bond investors consider Trumpian US an even bigger risk than Brexit insane UK. So the US Government, banks and businesses have to endure a higher cost of capital than German ones. So, US firms don’t have easy international options for investing and modest ones at home. Share buyback is the best invest on offer. Japanese, Eurozone, even UK firms can buy into the US more profitably than US firms. Buyback puts up prices and protects against takeovers. US firms have decided that buying their own stock is a better bet than investing in Emerging Markets.

Russia, despite the fall in oil price and waves of US inspired sanctions still manages to be in better shape than Brazil. Even so, a project offering an annual dividend of 7.8% would not cover its cost of capital in Russia but look quite attractive in Japan, except that Japan is already the world’s most complex economy (MIT Observatory) so “Everything is up to date in Osaka City; They’ve gone about as far as they can go” so 7.8% return projects are hard to come by in a land of shrinking population.

If you think that the market is overdoing the degree of risk in Ukraine, a 15% yield and your money back in 10 years awaits you. In principle, there is arbitrage between all these bonds and the real values are identical so far as professional investors are concerned.

This is absolutely not investment advice and no one, anywhere, should make an investment decision based on these comments which are wholly uninformed.

“There is a difference, which is that Trump was the military deep state’s candidate, whereas Obama and Clinton were the CIA deep state’s candidates.”

IF one believes in such a conspiracy theory.

“The military backed Trump because they are angry at being sent to fight wars they are not allowed to win despite having at their disposal overwhelmingly superior means of violence. Hence Trump’s promise to “bomb the shit out of ” ISIS, his enthusiasm for using nukes, and his advocacy for veterans.”

IF one believes in such a conspiracy theory.

“Immigration restriction was the pay-off that Trump promised the white working class in return for their votes. If Trump follows though on that, the difference between parties could mean the difference between survival and extinction for the European majority in America.”

Except Trump continues to employ immigrants, legal and illegal, in his vast financial empire. Asked about H-1B abuse during the primary, Trump said during a CNN debate in Miami: “I know the H1B very well. And it’s something that I frankly use and I shouldn’t be allowed to use it. We shouldn’t have it. Very, very bad for workers. And second of all, I think it’s very important to say, well, I’m a businessman and I have to do what I have to do.”

When it comes to BIG money, Trump is helpless. Jewish financialization of corporate America is to advanced for anyone to correct. The Fed is in charge, and the Fed is Jewish, and the Fed does what is good for Big Jew money. Right now, Trump can do nothing about that juggernaut.

Financialization is where you make profits by trading paper assets – not by increasing production, productivity, and new products. Playing with the stock price puts no actual food on the table.

Trump’s only hope for a better economy is to advance small business and encourage foreign investment. Those business are interested in normal profits from production – not financialization profits.

Will Trump ever tackle the Jew financial juggernaut? He has taken on the CIA in Syria, and he wants to fire the general running Afghanistan – two major power centers in the US government.

(QE =the central banks stealing trillions of dollars from the public to pay the banking mafia’s gambling debts)

it will almost certainly lead to a 1929 crash sooner or later which the banking mafia will then blame on someone other than them (but it’s 100% them and almost always is)

#

job increases are currently a function of the massive over supply of labor which makes people desperate so firms can hire 3 part-time workers instead of one full-time

people working 3 p-t jobs is a sign of the twisted neoliberal economic model getting worse not better

#

so neither of these things are a good economic sign however they weren’t a good sign under Obama either but the media made them so to cover for him, so tactically it makes sense for Trump to deflect media criticism by using the same metrics the media lauded when Obama was in power.

the down side is what happens if/when stocks crash and the media try and blame him for it and he’s been saying the economy is great?

dunno

rationally i’d say it ought to cause quite a problem (if it happened) but my gut feel is his supporters are too rock solid now.

what’s happening is the massive over supply of labor is forcing people to take whatever they can get which generally means taking multiple p-t jobs so the total number of jobs increases but everyone is worse off.

this was happening before Trump and is a result of mass immigration and off-shoring but when Obama was in power the media covered it up and used the net job figures to say everything was great.

Trump is saying the same things Obama said, using the same data Obama did – which the media said was a booming economy even though it was a massive lie – as a shield from the media wanting to attack him on the economy.

if his immigration and on-shoring policies succeed then the problem will be fixed and it won’t matter.

Very artistic. and true. Truth is anything that you want it to be and faith seems to validate it. We all see our belief venue and glean the tidbits whenever we choose. The parties are simply two side of the same coin that pays for our consternation and , now that the Internet is available, we may all vent.

I would like to see some numbers that would support Mr. Hudson’s explanations. Like for example stock ownership by corporations over some period of time.

When stock is bought back by companies, then that stock retired. Now that there are less shares, the earnings per share is higher. In addition, there is no need to pay a dividend on the shares that have been retired, so the dividend can be increased without paying out any more money.

So you would have to see whether the number of shares extant for a stock is decreasing. Companies like Microsoft and Apple certainly do have massive share buy-back programs.

However, there could be other factors, for example the Sovereign Wealth Fund of Saudi Arabia is probably spending a vast amount of money on buying positions in major US companies.

If University professors knew anything about economics they’d all be rich.

A school friend of mine who has held multiple academic appointments as an economist, has worked as an economist in over 20 countries, and served in government as an economist at the highest levels of the bureaucracy, called me many years ago in a disturbed frame of mind to say that he had researched the careers of economists in Canada and discovered that only two of them were rich.

His discovery suggests that economics professors do not lack knowledge whereof they teach, but rather that what economics teaches adversely affects one’s financial prospects, such that even the brightest are liable to remain poor.

This shouldn’t surprise anyone. Since Mr. Trump had (and IMO still has) no idea what the duties of a president or any other government official are, anything he said he was going to do was either a wild guess or a boast. I guess a lot of his supporters thought that him having no experience in government is “just what we need”, but in practice it is impractical to have a president who thinks he can fire anyone who disagrees with or challenges him. Besides that, he has a long history of breaking promises, including multiple divorces and bankruptcies.

I did not know that the stock can be retired. I did not know what CanSpecy said that stock can be created ab nihilo at company’s whim to reward its executive. Also I thought that a new thing was to not pay dividends at all.

So as you can see I do not know much. Still I would like to see some confirmation of Hudson’s claims. Besides I thought that purchasing or selling stock in order to influence the stock price, i.e., to manipulate the market was strictly prohibited.

Population explosion and very rapidly diminishing resources still the elephant in the room.

And why not? The larger it looms, the more urgent the need to deny it, since everyone -
still organisms in a finite universe tuned in to limits on some level – vaguely senses that it’s too big to correct, anyhow.

With the result that the iron grip that the Money Power held over public perception of politics has been broken, and Donald Trump is among the first politicians to appreciate and act upon that fact, by promising important concessions to the public will. Whether he remains true to his commitments remains to be seen, although in the early going he has acted as promised (on coal, oil, climate change, immigration, trade deals). Moreover, it is difficult to see how he can fulfill his ambition to win in ’20 without continuing to do what he promised.

I don’t see why people who oppose the political parties of the rich nevertheless propogate their myths, such as that getting rich is a sign of economic insight. (More broadly, “if he’s so smart, why isn’t he rich?)

You actually think the billionaires understand economics? If they had a brain (or a soul), they’d have better things to do than get rich.

Many interesting comments. I have a minor one：Hudson claims that the Kochs were significant Trump donors. My impression was that they were opponents.

Note that I am saying ‘impression’, not ‘assertion’ (also below).

I do understand that the basis of Trump’s style of business is credit, other people’s money and fiat money, as is the case for most of the wealthy and very wealthy (I am finding the concept dirty, so will never be rich), so that may have been how the campaign was run, and my impression was that Trump’s campaign was largely self-funded, albeit on the back of his credit-made businesses.

Would be appreciating a comment on these two points from a calm and knowledgeable USA person.

Well we are talking about people who claim to be experts about what industries are thriving, how money is circulating, what new technologies are out there, etc. They are forever telling us what the price of stocks will be, where the jobs are going and other things that should be very valuable information (if it was really accurate) for selecting stocks and making investments.

Their complete inability to cash in on their great insights would tend to give you pause about those great insights.

Given their record when it comes to the bubbles where they have written idiotic stories about the bubble to being new normal one might also say that do you actually think economists understand the economy? At least the billionaire has something other than failure to show for his beliefs

Forget the “unemployment” rate. What percent of the working-age population is employed? Run those numbers and you’ll find it’s about 60%. That’s up from 58% when Obama started, but far below the 65% of about 2000.

Trump is very foolish to tout the rise of the stock market (as if to take credit for it), which he has done repeatedly — I cringe whenever this happens — what goes up must come down etc — but then he is and always has been rather buffoonish.

Banks want to relax regulation so they can make more loans. But they could make more loans if (1) they did not distribute 100% of the current year’s earnings to investors and (2) If they kept their share buybacks.

Isn’t paying your investors a duty? What does keeping share buybacks really mean? Did they spend money on buying shares? And they did not keep them, so what happens to the shares? Extinguished?

They have a magical blend of Minksy, Knapp, et al called Modern Monetary Theory that the folk can believe in. It’s good timing in the era of reduced expectations featuring foreclosures and spirited opiod use – to tell everyone we’ll never, ever, ever go broke here in the USA. Fish and loaves or maybe straight to Revelations with this theory.

Dean Baker, also on the job but not at Kansas City, is a growth or death kinda CIA guy who spends his Ford Foundation largesse ridiculing the loyal opposition who “have it all wrong.”

Folks like Baker, Krugman (who wears the “guy who has it wrong” label more frequently) Hudson and including the Wall Street funded Real News – do a good job of shepherding the ever poorer American flock. Explaining “how things work” without which we’d probably be worse off.

I believe Dr. Hudson’s analysis is irrational. If corporate earnings are used to fund the purchases of stock, the capital of the corporation has been reduced and the stock value should not change.

The rise in market cap must come from new money being introduced into the market. That can come from inflation, and the benefactors of inflation are the Wall Street bankers. The hidden embezzlement from exclusive handling of Treasury auction funds by the FRBNY (Ref. 31 CFR 375.3) provides the new money. Ref. https://www.scribd.com/document/355085824/Embezzlement-by-Federal-Reserve

I believe Dr. Hudson’s analysis is irrational. If corporate earnings are used to fund the purchases of stock, the capital of the corporation has been reduced and the stock value should not change.

LOL. How has corporate capital been reduced? On a stock buy-back, stock price goes up, capital remains the same. How do you think “market cap” is calculated, anyway?

Insiders reap a cash bonus based on stock price going up. For instance, if market cap is $200M, and there is a stock buy-back that raises the stock price, the market cap is still $200M; however, the CEO and BOD will extract bonuses of, say, $10M. If there is no increase in profit, and no one external buys the higher-priced stock, the market cap (pre-fudging of quarterly numbers) is now $190M in terms of real value.

Thus, the CEO and BOD loot the company from within, extracting wealth over time, until the company is a hollow shell, as productivity and profitability shrink.

This is not a new technique. Owners have been extracting cash from assets of companies for centuries. Companies they built, companies they own, companies that are theirs to take from. The difference is in the public corporations, put up for public stock ownership, where people buy-in and participate in company growth and profitability. Buy-backs of stock that end up as cash in the pocket of CEO and BOD are a form of fraud. It’s that simple.

the government knows the status quo won’t last. that explains the militarization of america. citizens, once the jig is up, are going to revolt.
think it can’t happen here? revolutions are not a rare or endangered species.
the young folks at this site will see the day.
remember, it’s the young that have the passion to challenge their future.

I believe the “business judgment” rule allows corporate officers to refrain from distributing profits to shareholders unless there’s an unusual provision in the bylaws or articles of incorporation that mandate distribution.

Buying back shares results in the shares being retired and not available for reissuance. The number of outstanding shares is reduced.

I am not familiar with the usage “keeping share buy backs.” I understood the article to mean that the banks (i.e., bank officers) are perversely motivated to buy back shares as the board and shareholders are apparently too stupid to delink compensation from a rise in share price artificially accomplished by pointless buy backs. Pointless because more shares could be left in the hands of shareholders without any duty of the bank to pay dividends. The amount of the dividend or whether to pay any dividend are at the discretion of the corporation so having more shares outstanding does not require an “unwise” declaration of a dividend. Bank pays minor dividend. Big deal. If they pay the same dividend to fewer shareholders. Fine too. The point of the article was that the justification for the banks’ request for less regulation was bogus.

It is a good point. Corporation spends X to buy N shares at price p1 (X=p1*N) and then as some say retire them. Say there were M shares on market so capitalization was Y1=p1*M. The price of shares is supposed to increase from p1 to p2 because of shares bay back. So now market capitalization is Y2=p2*(M-N). It is not guaranteed that Y2>Y1

If this is true p2*(N-M)>p1*N then (p2-p1)/p2>M/N. How many shares you have to buy to increase price from p1 to p2?

But anyway corporation does not care that much if capitalization increased or dropped.

Executives, however who had K shares increased the value of their shares (potential wealth if they sell them by (p2-p1)*K. By this operation corporation get poorer by about X, capitalization my increase or not but executives get richer by (p2-p1)*K. This is the Hudson’s point. Corporation suppose to get X from profit. Anyway I am dubious of the whole scheme. I would like to see data of purchase of shares by corporations.

Buying back shares results in the shares being retired and not available for reissuance. The number of outstanding shares is reduced.

However you look at it buyback is throwing money away. Corporation buy shares and then burns them. Furthermore if your buyback won’t increase the share prices sufficiently its capitalization drops as well if share price increase is smaller and it can’t compensate the number of shares removed from the market. For executives however it does not matter. It is not their money and if share price increased they got richer on their stock options. But the corporation gots poorer and it is possible that the capitalization also dropped if the reduced number of outstanding shares was not compensated by the expect price increase of shares.

Does Hudson claim that this scheme is carried out just for the benefit of executives?

I wonder why this is not illegal? I though that trading for the sake of manipulating prices of shares was illegal.

Jonathan Mason above indicates the same total dividend distribution benefits fewer shareholders. Hudson only mentioned the benefit to officer(s) of a share price increase. Large shareholders would be indifferent to huge compensation if their total dividend exceeds the executive compensation. Smaller shareholders are hurt. The former gain from potential capital gains and larger dividends. Large shareholders would thus not be a source of opposition to buy backs.

I don’t know securities law but I doubt that mere stock purchase that affects price is illegal. All I know is that insider trading and fraud are criminal.j

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Jubilee, you don't know how fractional reserve banking works. The central bank issues high powered money and banks can issue a multiple of that kind of money. When you take money out of the bank, their high powered money reserves go down and they need to borrow some of it(not the kind of money th...